The Goods and Services Tax Appellate Tribunal (GSTAT), Pune Bench, has upheld 18% GST on works contracts executed for four co-operative spinning mills, holding that government funding, sanction and supervision did not, by themselves, establish their eligibility for the concessional 12% rate.

The bench of Shridhar Mahadeo Bhosale (Judicial Member) and Dr. Nirmal Kumar Soren (Technical Member) has observed that the factory buildings’ intended industrial and commercial use independently defeated the concession, irrespective of the projects’ social welfare objectives.

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The Bench dismissed the contractor’s appeal and confirmed a total demand of ₹1,41,64,620, including differential tax, disallowed input tax credit, interest and penalty.

The appellant/assessee is a Sangli-based contractor and builder, executed works contracts during financial year 2018–19 for co-operative spinning mills at Kej, Morshi, Majalgaon and Igatpuri in Maharashtra.

The contractor applied 12% GST, relying on the Maharashtra Textile Department’s involvement in approving tenders, financing the projects and supervising their implementation.

Following an audit, the State Tax Officer issued a show cause notice proposing differential GST at 18%. The proceedings also concerned ITC exceeding the amounts reflected in GSTR-2A and credit claimed beyond the statutory time limit.

The adjudicating authority confirmed the demands. In the first appeal, a separate demand of ₹1,29,81,687 relating to time-barred ITC was reduced to nil by applying Section 16(5). The Section 122 penalty was also treated as nullified. The contractor approached GSTAT against the surviving liability.

The tribunal examined tender documents, work orders, agreements, invoices, government resolutions and the societies’ records.

It accepted that the projects were sanctioned, monitored and supervised under a Maharashtra government scheme, with tender approvals passing through a committee chaired by the Textiles Minister.

However, the documents showed that the societies invited the tenders, entered into the agreements as owners, received the invoices and paid the contractor. The societies, rather than the Government or the Directorate of Textiles, were therefore the recipients of the supplies.

The tribunal distinguished approval of the GST component within a contract price from determination of the statutory tax rate. A State department’s administrative decision concerning how much tax a society would bear could not alter the rate prescribed by notification under Section 9(1).

The contractor sought the concession under Serial No. 3(vi) of Notification No. 11/2017-Central Tax (Rate), as applicable during 2018–19.

The tribunal held that registration under the Maharashtra Co-operative Societies Act did not itself establish that a society had been set up by an Act of Parliament or a State Legislature.

Under the alternative limb of the definition, the recipient had to be established by a government, with the prescribed participation through equity or control, to carry out an entrusted function.

The Igatpuri society was registered in 2001 and selected for government financial assistance under a government resolution of 2015. The tribunal distinguished constitution of the society from subsequent financial assistance for establishing the spinning mill project. Sufficient constitutive evidence was not produced for the other societies.

Significantly, the tribunal did not decide whether government participation met the 90% equity-or-control test. It held that the separate requirement of establishment by the Government had not been established.

The tribunal found that the claim failed independently because the relevant entry required the structures to be meant predominantly for use other than commerce, industry, business or profession.

The contracts concerned main factory buildings and allied works. The society’s bye-laws contemplated purchasing cotton, producing yarn and selling finished goods. Such buildings were intended for industrial and commercial use.

The contractor argued that the projects promoted socio-economic upliftment and employment among designated backward-class communities. The tribunal held that these objectives did not change the intended use of the factories.

It also rejected the distinction between a one-time construction contract and the mill’s subsequent operations. The notification required examination of the use for which the structure was built.

Accordingly, the tribunal upheld 9% CGST and 9% SGST, confirming differential tax of ₹65,43,016.

The contractor maintained that it had disclosed the transactions and acted on a bona fide understanding arising from government documents.

The tribunal held that interest under Section 50(1) was compensatory. The penalty under Section 73(9) applied to proceedings not involving fraud or suppression; absence of deliberate evasion did not itself eliminate that liability.

Government correspondence concerning contract prices could not override the notified rate. The tribunal also found no basis under Section 50(1) for the requested waiver of interest.

Interest of ₹60,25,718 under Section 50(1) and the surviving Section 73(9) penalty of ₹6,96,250 were upheld.

The contractor alternatively requested a tax-inclusive recomputation because it had collected no more than 12% GST.

However, its invoices expressly recorded contract receipts as exclusive of taxes and charged CGST and SGST separately. The sales register likewise classified the receipts as tax-exclusive.

The tribunal therefore declined to treat the contract price as inclusive of GST when computing the differential demand.

The tribunal also upheld disallowance of ₹4,19,476 in ITC claimed beyond the amounts reflected in GSTR-2A.

It examined Section 16(2)(c), the claimant’s burden under Section 155 and CBIC Circular No. 183/15/2022-GST. For supplier-wise differences up to ₹5 lakh, the circular contemplated supplier certificates confirming the supplies and payment of the corresponding tax through GSTR-3B.

The contractor produced ledger accounts, some invoices and portal printouts, but did not furnish the required certificates or an invoice-wise reconciliation identifying the disputed credit.

The tribunal explained that a printout showing that a supplier filed a return did not prove that the particular supplies were declared and their tax paid.

It clarified that the denial was not based on fictitious purchases, non-existent suppliers or non-receipt of goods. The contractor had failed to establish payment of the relevant tax to the Government.

The tribunal distinguished the buyer-protection decisions relied upon by the contractor, including Suncraft Energy, D.Y. Beathel Enterprises and Arise India.

It held that the reversal was not mechanical: repeated opportunities had been given to produce supporting evidence. A further remand was unwarranted because the missing records were within the contractor’s possession or obtainable from its suppliers.

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